Microtransaction in Gaming Industry

Insight on Microtransaction in Gaming Industry

Microtransaction – An integrated Part of Gaming Industry

Since the start of the millennium, microtransactions have been an essential concept in the area of the gaming industry. This phenomenon basically involves small value financial transactions that take place within digital games and apps. It usually involves the direct purchase of specific in-game content or features, including items such as outfits, vehicles, weapons and many more. Microtransactions are currently one of the most popular ways to monetize video games, especially the free to play ones. The gaming industry is always in a perpetual state of change. In the global context, microtransaction has successfully made a mark in the gaming industries.

Role Microtransactions Play in today’s Gaming industry

Every year, technology has been developing and with that, the gaming industry is growing stronger. A lot of gaming studios have taken advantage of microtransaction to create online games such as Fortnite, Players Unknown’s Battleground (PUBG) and Grand Theft Auto Online (GTA). However, one could see more of gaming developers attempting to capitalize on the fact that gamers now spend actual money on the games that they spend hours playing.

While companies attempt to give their own clarification behind these microtransactions, many customers are concerned that game designers are striving to drain considerably more cash over the increasing game prices. Generally, they have positive effects as they enable the company to gain more money to develop their games but microtransactions also have some negative effects in this industry. For example, gamers who refuse to spend money on add-ons will need to spend more hours to obtain the same feature than the ones who are willing to pay. This is unfair to gamers overall as it can cause a pretty significant skill gap in the gaming community.

“Something that game developers have been doing recently that really has gamers against microtransactions is locking exclusive in-game gear that can only be obtained through microtransactions.”

Throughout the early stages of the gaming industry, all parts of the games were by one way or the other access to the gamers through missions and tasks that needed to be completed in the game. However, in most recently released games, to achieve a special feature, for instance, a special gun, vehicle or special attire, you are required to spend some money.

Microtransactions are the results of game developers exploiting the fact that gamers are often willing to purchase virtual items. This is becoming more obvious recently, as some recent games have included some doubtful microtransactions that have made some game severely unbalanced.

While game developers are responsible for how they actualize microtransactions into the plan of action of their games, gamers must turn out to be progressively mindful of the microtransactions they buy.

Pros and Cons of Microtransaction

Microtransactions definitely have a lot of benefits. Developers get another opportunity to increase their revenue and since the actual costs of virtual goods are next to nothing, microtransactions directly mean more profit. This would provide additional financial support to developers from those who are willing to spend a little extra. Microtransactions are a great opportunity for fans and gamers to donate to and support the company if they like the product. In exchange, they can also obtain perks and benefits of their choice within the virtual world, which can mean additional content and entertainment.

Several games, especially in the mobile gaming market, are free to download. The only source of revenue the developers gain from these games is through advertising. Most of the advertisements gamers come across are unnecessary and irrelevant to their gaming experience. In these scenarios, microtransactions are the only way users can pay developers. Some of these microtransactions also waive advertising, which means gamers can have better experience playing these games. These companies can hence extract their revenue directly from their customers instead of relying on third-party advertisers.

However, microtransactions do have some detrimental effects on gaming. Not everyone can afford them. Even many of those who can, do not choose to buy them because they do not agree that it is worth spending “real” cash on “virtual” goods and services. Most of these goods are upgrades or skins. There are usually two ways to achieve these kinds of upgrades: in-game currency earned from playing the game (for some items, this can be an extremely long process) or merely pay for various items, which is never a long process. Most people who choose to pay for these upgrades do not grind out the currency which takes away from the actual gaming experience. Thus, people who choose to make microtransactions not only affect the ones who choose not to buy them. Microtransactions act as a paid cheat code, which again, in a way, ruins the gaming experience for the buyer as he cannot fully live through what the game has to offer.

Psychological Tricks Used in Microtransaction

Advancements in neuroscience have made way for doctors and scientists to delve deeper into a person’s neurological system and conduct experiments on this subject. It turns out that the brain has a specific area designated to produce dopamine called the neurological reward system. The brain processes different types of pleasure and in turn, releases dopamine to give us the feeling of satisfaction. A very similar logic applies to In-game Currency, Random Chance Purchases or Loot Boxes, Offer “Discounts” and Reward Removal. When people start using these microtransactions, they tend to equate a monetary loss for a virtual gain, which in some cases the brain can get used to and rely on in other different scenarios as well. Although further studies need to be conducted to determine its actual authenticity and how many individuals it applies to, microtransactions do have the potential to wire a person’s brain differently.

Economical Effect of Microtransaction

“Microtransactions, which have become one of the largest revenue streams in the gaming world in the recent years allow free to play games to increase their incomes steadily”

In 2018, the video game industry had an audience base of 380 million people. As the size of the market increases significantly each year, it is safe to assume that the global video gaming business is growing at a rapid pace. The market size in 2015 was $91.1 billion which grew to $106.5 billion in 2016 and $121.7 billion in 2017. The projection for 2018 was $137.9 billion, with a massive $180.1 billion expected in 2021.

In recent years, especially since the release of smartphones, the gaming market has enjoyed a boost in revenue through microtransactions. These small payments have made big contributions to the industry. People have been buying surplus content more than ever before.

SuperData published a report tallying the revenue earned through free PC games which claimed that it has doubled since 2012. Add-on content tallied up to $20 billion in 2017, $9 billion more than what it was in 2012. SuperData has forecasted a further increase of $3 billion by 2022. In the same time frame, revenues also increased for gaming companies. Game sales accounted for $5 billion in 2012 and rose to $8 billion in 2017, a 60% increase and is predicted to reach $11 billion by 2023.

This would eventually lead to a scenario where the add-ons would account for higher spending than the actual game itself. For example, EA Sports’ FIFA 17 peaked in sales in September 2016, when it was released and the rest of EA’s revenue is dominated by microtransactions, specifically by FUT (FIFA Ultimate Team), an online gaming environment released by EA in 2010 where users can purchase player icons for virtual coins.

The total expenditure on games has also increased. Americans spent $36 billion just on games (including console, PC, microtransactions, and hardware accessories), a 54% increase from 2012.

Gaming Industry in Nepal

Video gaming has evolved in Nepal, just as in other parts of the world. About a decade ago, video gaming activities in the country were mainly limited to the rooms of hardcore gamers and “cybers” where these gamers spent hours playing popular single and multiplayer games. The proliferation of gaming PCs, consoles and increasing internet bandwidth in conjunction with the exponential growth of smartphones over the past decade, has now expanded the scope of video gaming.

In the context of Nepal, there are many emerging gamers who play console games and some free games like Fortnite and PUBG. With respect to this a console player from Nepal, for example, Xbox Live or PS4 spends an average of $60 a year whereas according to the new study by financial services company Landedu, nearly 70% of Fortnite players buy digital items and a player on average spends $58.25 on this game.

Conclusion

To conclude, microtransactions are becoming increasingly prevalent in game business models as an exclusive or partial source of revenue, but the transition is not without problems. The goods must be designed to offer the potential consumer a strong value proposition, while not alienating the player who does not buy the goods.

Overall, microtransactions can work very well as a business model, as long as companies keep their customers in mind as their first priority and have to spend money on their title, with profit and paywalls taking a background position.

It is not difficult to predict that in-game micropayments will dominate the revenue streams for publishers in the coming years. People are spending more and more every year on games, which has allowed a separate and stable market that focuses solely on gaming to take shape in the past decade. While the future still remains unpredictable, it is unlikely that people will stop using microtransactions.